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January 21, 2019

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Global Direct Sales, LLC v. Krowne

NOTE: The information and commentary contained in this database entry are based on court filings and other informational sources that may contain unproven allegations made by the parties. The truthfulness and accuracy of such information is likely to be in dispute. Information contained in this entry is current as of the last event mentioned in the "Description" section below; additional proceedings might have taken place in this matter since this event.

Legal Counsel:

Global Direct Sales, LLC, its principals Ryan Hill and Christopher Russell, and the Penobscot Indian Nation sued Aaron Krowne, Krista Railey, Implode-Explode Heavy Industries, Inc. (IEHI), Krowne Concepts, Inc. (KCI),
and others after Krowne's mortgage watchdog website, The Mortgage Lender Implode-O-Meter, published an article written by Railey that criticized the Grant America Program. The Grant America Program is a seller-financed down payment assistance program for low- to moderate-income homebuyers, operated under an agreement between Global Direct Sales and the Penobscot Indian Nation.

The Implode-O-Meter site hosts Railey's "FHA Mortgage Whistleblower" column, where the article appeared. In her article, Railey allegedly made a number of false and defamatory statements, including that the Grant America Program was a "scam," and that Russell and Hill had treated another charity they founded "like their own personal piggy bank." Cmplt.¶ 37. In response to an angry comment by Russell, Railey conferred with Krowne and other website editors, who edited the article to "tone down" the commentary and removed references to the word "scam" from the article before it was republished on Railey's blog (apparently the original version that appeared online was a draft published inadvertantly). The plaintiffs filed suit nonetheless. Railey, Krowne, and the other defendants maintained that the article was accurate and based on publicly available information.

At a hearing on November 3, 2008, the court denied the plaintiffs' motion for a temporary restraining order and preliminary injunction. Noting that the "article is out there, has been and cannot be eliminated from the internet," and that damages would be available later, the court held that the plaintiffs had failed to establish irreparable harm. The court also found that an injunction "would affect a First Amendment right of the defendants" and would "stifle rather than foster appropriate debate."

On November 11, 2009, the remaining defendants (IEHI and KCI) filed a special motion to dismiss under Maryland's anti-SLAPP law, arguing that the plaintiffs filed the suit in bad faith because of defendants' exercise of their First Amendment rights and rights granted by the Maryland Declaration of Rights.

Plaintiffs responded on December 7, 2009, contending that Maryland's anti-SLAPP law does not apply in federal court because it is predominantly procedural and conflicts with the Federal Rules of Civil Procedure. They also argued that the statute was inapplicable because it only applies to communications "regarding any matter within the authority of a government body," and "multiple" statements in the article at issue did not involve such matters. Plaintiffs further claimed that the complaint was filed in good faith, that the article was not entitled to First Amendment protection because it "contains both false statements of fact and unsupported opinion that implies defamatory facts," and that the article was prompted by constitutional malice in "retaliation for the plaintiffs' refusal to advertise on [defendants'] website." Throughout the brief, the plaintiffs relied heavily on a declaration provided by the author of the article at issue, Railey, which "admit[ted] that ‘there are significant problems with the final published article" and that the "article contains and implies false statements of fact and is misleading in a material manner."

The defendants filed a reply in support of the special motion to dismiss on January 26, 2010. They argued that the Maryland's Anti-SLAPP statute was applicable, because it is not inconsistent with federal rules. Defendants also claimed that the article "addressed an issue within the authority of a government body, . . . Plaintiffs cannot satisfy their burden for their defamation claim, and . . . this suit was brought in bad faith to drive Defendants out of business and thereby silence them." Defendants contrasted Railey's declaration for the plaintiffs with a "much earlier declaration," in which she stated "I stand behind all of the statements I have made in my article about the Plaintiffs and believe each and every one of them to be based in truth and supported by my research."

On July 12, 2010, the court denied the defendants motion to dismiss pursuant to Maryland's anti-SLAPP statute. The court applied the statute because it "is limited in its scope and appears not to conflict with the Federal Rules of Civil Procedure." However, the court concluded that there were genuine issues of material fact as to whether "the suit was brought in bad faith," the article "was regarding any matter within the authority of a government body," and "whether Defendants maliciously published the article."

The attorneys for IEHI and KCI subsequently filed motions to withdraw from the case, and, on May 31, 2011, the court granted them. In doing so, the court advised the defendants that, as corporate entities, they could not move forward without representation. The court subsequently defaulted both entities for failure to answer the complaint through counsel. Plaintiffs then filed an unopposed motion for default judgment as to liability against the defaulted defendants, for summary judgment, and for a permanent injunction. The court denied that motion on April 9, 2012, finding that, although the plaintiffs' had properly pled the elements of defamation, a final judgment could not be entered while the claims against defendant Railey were still pending.

On July 6, 2012, IEHI and KCI, represented by new attorneys, filed a motion to vacate the entry of default. The court granted the motion, finding that the defendants' had established "the viability of four defenses to Plaintiffs' defamation claims"-they "demonstrated, with ample factual support,: (1) Plaintiffs . . . are government entities, and as such, under the First Amendment cannot maintain actions for defamation or libel; (2) Plaintiffs cannot meet their burden to prove falsity . . .; (3) the author, Railey, was not an agent of the IEHI and Krowne Concepts . . .; and (4) Plaintiffs do not allege that they suffered any harm as a result of Defendants' statements." The court decided that the defendants' yearlong delay in moving to vacate the default was not dispositive, as it did not prejudice the plaintiffs.

On July 1, 2013, the defendants moved for summary judgment. They elaborated on the claims included in their motion to vacate the judgment and raised, for the first time, a defense under Section 230 of the Communications Decency Act, claiming that the defendants "did little more than provide a canvas upon which third parties placed material." Plaintiffs responded to the motion by arguing that Section 230 was inapplicable. According to plaintiffs, IEHI "was responsible for both creating and developing" the article as a "joint project" with Railey. Relying on Fair Housing Council of San Fernando Valley v. Roommates.com, LLC, 521 F.3d 1157 (9th Cir. 2008), the plaintiffs argued that a website is a content provider "even if it did not ‘create' the content as long as it ‘materially contributes to the illegal conduct.'" Plaintiffs argued that IEHI materially contributed to the article because IEHI editors performed research for the article, edited the article before it was published, exchanged drafts, and "had the last say on what was published."

The district court dismissed the case on summary judgment on Sept. 18, 2013, holding that even if the plaintiffs' allegations were true, Section 230 "immunize[d] IEHI from this defamation action." The court noted that "determining what makes a party responsible for the ‘development' of content under Section 230(f)(3) is unclear," but that, under Roommates.com, 521 F.3d at 1163, "one is responsible for the ‘development' of information when he engages in an act beyond the normal functions of a publisher (such as deciding to publish, withdraw or modify third-party content) that changes the meaning and purpose of the content." On the other hand, the court stated, if an internet service provider "only passively displays content that is created entirely by third parties, then it is only a service provider with respect to that content."

The court found that, in this case, "[h]olding IEHI liable for mere control of the website on which allegedly defamatory content was published is precisely the type of conduct that falls squarely within the protections of the CDA." The court held that even if plaintiffs' assertions that "Railey received direct input from Krowne, that [an editor] performed research and that drafts were exchanged, and IEHI had the last say on what was published" were true, these actions merely amounted to "monitoring and publication of content on its network - ‘actions quintessentially related to a publisher's role.'" "[E]ven assuming Krowne edited or altered the content of the allegedly defamatory article," the court noted, "IEHI would still be immune." The court therefore concluded that Section 230 barred the plaintiffs' defamation claims.

By party agreement, the complaint was withdrawn as against KCI, and Penobscot Indian Nation was removed as a Plaintiff. The claims against Railey appear to have been settled outside of court. According to the docket, the case was terminated on September 25, 2013.

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